Mortgage rates dropped to their lowest level since late February.
The rate on the 30-year fixed mortgage — the most common home loan — decreased to 2.90% this week, down from 2.98% a week ago, according to Freddie Mac. That's the lowest rate since Feb. 18 when it hit 2.81%. A year ago, the rate stood at 3.03%.
The drop comes after a rally in 10-year Treasury bonds as economic growth concerns and the Federal Reserve's next move on interest rates weighed on investors. That pushed the 10-year bond yields lower, which fixed mortgage rates tend to track.
"Markets are trying to anticipate the timing of the Fed’s next move and this week, the Fed meeting minutes conveyed more patience toward tapering and rate hikes than the market had expected immediately following the late June meeting," said Danielle Hale, chief economist of Realtor.com. "In other words, rates slipped as investors realized that the last Fed discussion may not have been as hawkish as was originally believed."
'I haven’t seen any increase in refi prospects'
The rate provides an opportunity for 13.856 million creditworthy homeowners to shave off three-quarters of a point from their mortgage and reduce their monthly payment by $290 on average through refinancing, according to data provided to Yahoo Money by Black Knight Inc., a mortgage data analytics firm.
Still, refinance applications have trended lower than 2020 levels for the past four months, according to the Mortgage Bankers Association. For instance, the MBA's index that measures refinance activity decreased 2% last week from the previous one and was 8% lower than the same week a year ago.
"While rates have lowered somewhat, I haven’t seen any increase in refi prospects," John Stearns, senior loan officer with American Fidelity Mortgage Services in Wisconsin, told Yahoo Money. "I closed a refi Tuesday but their rate was locked in over a month ago."
'Buyers will have to be persistent'
For home shoppers, the drop presents an opportunity to lock-in that low rate.
"The new purchase clients I’m talking to are happy with the rate movement," Stearns said. "Everyone says, 'I thought rates were going to go up this year.' All I can say is 'Me too.'"
But buyers face headwinds that diminish the benefit of low rates. The inventory of homes remain near historic lows, forcing buyers into bidding wars over houses. That's sent prices surging. In April, home prices jumped 14.6% year-over-year, a pace not recorded in more than 30 years.
"Buyers will have to be persistent and act quickly," Hale said. "Homes were on the market for a record-fast 37 days in June."
Future of rates
Experts expect rates to bounce around 3% at least until August, when the Fed may provide a clearer timeline for its plans to curb its mortgage-backed security purchases, which helps to drive down mortgage rates.
But rates are unlikely to reach the all-time lows set in early January. On Jan. 6, the 30-year fixed mortgage rate hit 2.65%, the lowest level on record dating back to 1971.
"It's certainly possible, but it would take a big departure from the current trends," Hale said of carving out new lows. "The housing market would need to slow and Treasuries would need to decline further. Given the improving economic outlook, I don't see that happening."